Identifying and then unraveling money laundering schemes in a global financial network where as much as one trillion dollars is circulating each day amounts to “finding a needle in a haystack of needles,” says Michael Zeldin, global leader, anti-money laundering/trade sanctions services for Deloitte Financial Advisory Services. Adding to the difficulty of tracking illegal asset transfers, he says, is the sophistication of the people for whom money laundering is a business, who charge as much as 20 percent in payment for their services. “They are very clever people who are paid a lot of money to make sure that the source of money goes undetected. As soon as the government or banks identify one activity as suspicious, they stop using it and come up with something else.”
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Still, prosecutions for this complex crime are initiated daily by authorities around the world, Zeldin says. Data collected from mandatory financial institution reports combined with law enforcement stings and undercover operations bring money laundering activities to trial. A conviction in the felony crime of money laundering brings a sentence of 20 years in prison.
Financial companies are required by the Bank Secrecy Act (BSA), to file Currency Transaction Reports (CTRs) for transactions in currency that exceed $10,000, and Suspicious Activity Reports (SARs) for suspicious transactions that in aggregate exceed $5,000. The money laundering schemes uncovered in New Jersey recently with the help of an FBI informant involved small sums of money paid to charities by check with sponsors of the charities receiving a percentage of the proceeds, which was then returned in cash.
Financial companies that must submit the CTR and SAR reports now include brokers and dealers in securities, under the USA Patriot Act, and under recent Treasury Department rulings, casinos and money services businesses (MSBs), including money exchangers, sellers of traveler's checks and money transmitters.
These reports, which are filed with the Treasury Department, are “the backbone of money laundering prosecutions,” Zeldin says. Data gathered from numerous reports can point to criminal activity. Foreign Bank Account Reporting (FBAR), also required by the BSA, and currently a focus of the Internal Revenue Service primarily as a source of revenue, can provide important information in money laundering cases.
Most financial institutions have systems that automatically generate CTRs, but SARs are based on observation or red flags. Institutions need to develop Know Your Client (KYC) profiles and risk/rank their clients, Zeldin says. They should have systems that monitor transactional activity. They should be able to investigate any red flag that the system generates, and perform appropriate due diligence to determine whether the activity is true and reportable or false.
Banks and other money service businesses need to audit and test their CTR and SAR systems and train their employees in BSA compliance and reporting. Deloitte Financial Advisory Services Group provides support for financial services clients that are developing or refining their BSA reporting capability.
But not all money laundering schemes are designed by professionals. Some of the problems would-be money launderers face when trying to hide their cash are almost the stuff of comedy. Ex-representative William Jefferson of Louisiana, convicted last week of 11 counts of bribery, racketeering, and money laundering, famously hid $90,000 in cash in his freezer. The informant in the recent case in New Jersey agreed to cooperate with the FBI when he was charged with bank fraud in May 2006. He was arrested when he deposited two $25 million checks, one of them at the drive-up window of a PNC bank, and immediately withdrew $22 million. One check bounced, and the bank refused to accept the second deposit.